Everyone knows the saying about the only certain things in life: death and taxes – and your 2018 taxes were due a few weeks ago. But what happens when you can’t afford to pay your small business taxes on time? This was a particularly tough year for small business owners, who saw little savings and paid more in accounting fees due to tax law changes. In other words, the already significant tax burden small businesses face has just gotten more onerous.
Whether you couldn’t afford to pay your 2018 taxes on time, or you’re already worried about the year ahead based on your last tax bill, it’s important to know that you have options. By working with a lawyer, an accountant, and the IRS, you can negotiate an alternative payment plan that lets you fulfill your responsibilities as a business owner without ending up financially underwater.
1. Take Your Deductions.
One of the most important things you can do to ensure that you’re able to pay your taxes, and to minimize your tax burden as a small business owner, is to make sure you’re taking all of the appropriate deductions. Your accountant can help you determine what these are, but you do need to come prepared with appropriate documentation. Some expenses that you can deduct include advertising costs, fees, contract labor, and employee benefit programs, among many other common expenses. Deductions lower your tax burden and can actually help you drop into a lower tax bracket.
2. Keep Communicating.
If you can’t afford to pay your taxes by the date that they’re due, it’s imperative that you communicate with the IRS. As the lawyers at the W Tax Group explain, your tax debt lawyer can handle much of this communication for you, while also helping you negotiate a settlement or installment plan so that you can gradually pay your debts. What matters most, though, is that you don’t try to avoid the situation. That won’t help you resolve your tax problems.
3. Ask About Extensions And Instalments.
The IRS understands that people and businesses both regularly face barriers to timely payment, but that doesn’t mean they’re trying to avoid paying altogether. That’s why they offer multiple payment options, including extensions and installment plans. If you think you’re going to be able to pay your taxes in the near future – within 120 days, an extension could be the right choice for your business. You will, however, pay a monthly fee of 0.5% on the amount owed.
Alternatively, if you owe a lot more than you can pay and need more than a few months to get the funds together, you might be better off setting up an installment plan. Instalment plans can last up to six years, and you only have to pay a small fee to establish one with the IRS. And, compared with an extension, installment plans incur just a 0.25% monthly fee on the base amount.
4. Make A Compromise.
Finally, if you don’t qualify for an installment plan and you don’t see any way that you will be able to pay your tax fee in the near future, you can request what’s known as an Offer in Compromise. An Offer in Compromise is only for extreme circumstances and is evaluated on a case-by-case basis, but it also allows you to pay a smaller, negotiated amount either in a lump sum or a few installments. Additionally, if you agree to such a negotiated payment, you need to be prepared for what comes next; your taxes must be paid on time and in full for the next five years.
Paying your taxes on time should be a top priority as a small business, even if it’s a strain, but it’s also important to be realistic about what financial demands you’re capable of meeting. That’s why it’s important that you work with an appropriate team of professionals, as well as the IRS, to come to a satisfactory resolution. Taxes may be a source of frustration, but timely payment is also vital to the future of your small business.